-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MeURshHfsCIa7g/sb36ieesDpnRSFtKyVstxeU/b58xh9DtIqrweStOq4iDZOdFq oQGQoudcAmliPYNLa63E7g== 0000950172-99-001391.txt : 19991018 0000950172-99-001391.hdr.sgml : 19991018 ACCESSION NUMBER: 0000950172-99-001391 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19991013 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALL STAR GAS CORP CENTRAL INDEX KEY: 0000922404 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 431494323 STATE OF INCORPORATION: MO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-53343 FILM NUMBER: 99727492 BUSINESS ADDRESS: STREET 1: 119 WEST COMMERCIAL ST STREET 2: P O BOX 303 CITY: LEBANON STATE: MO ZIP: 65536 BUSINESS PHONE: 4175323103 MAIL ADDRESS: STREET 1: 119 WEST COMMERCIAL STREET STREET 2: P O BOX 303 CITY: LEBANON STATE: MO ZIP: 65536 FORMER COMPANY: FORMER CONFORMED NAME: EMPIRE GAS CORP/NEW DATE OF NAME CHANGE: 19940428 10-K 1 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended June 30, 1999 COMMISSION FILE NUMBER 1-6537 ALL STAR GAS CORPORATION (Exact Name of Registrant as Specified in Its Charter) MISSOURI 43-1494323 ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) P.O. BOX 303, 119 WEST COMMERCIAL STREET, LEBANON, MISSOURI, 65536 ------------------------------------------------------------------- (Address of Principal Executive Offices and Zip Code) (417) 532-3103 -------------- (Registrant's Telephone Number, Including Area Code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS ------------------- 12-7/8% Senior Secured Notes Due 2004 9% Subordinated Debentures Due 2007 SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part II of this Form 10-K or any amendment to this Form 10-K. (X) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No _ The aggregate market value of the voting stock held by non-affiliates of the Registrant as of close of business on September 24, 1999 is: $116,480. Shares of Common Stock, $0.001 par value, outstanding as of close of business on September 24, 1999: 1,564,050. Upon request, All Star Gas Corporation will furnish a copy of an exhibit listed but not contained herein. A fee of $.05 per page, to cover the Company's costs in furnishing exhibits requested will be charged. Please direct all requests to: Corporate Secretary, 119 W. Commercial Street, Lebanon, Missouri 65536; Telephone (417) 532-3103. PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES INTRODUCTION All Star Gas Corporation ("All Star Gas" or the "Company") was founded in 1963 and through its subsidiaries has been in operation for over 36 years. The Company is engaged primarily in (a) the retail marketing of propane to residential, agricultural, and commercial customers, (b) the retail marketing of propane-related appliances, supplies, and equipment, and (c) the renting of consumer propane storage tanks to residential and commercial customers under various brand names, including All Star and the names of numerous predecessors. During the fiscal year which ended June 30, 1999, All Star Gas supplied propane to approximately 112,000 customers in 19 states from 123 retail service centers and sold approximately 90 million gallons. Propane, a hydrocarbon with properties similar to natural gas, is separated from natural gas at gas processing plants and refined from crude oil at refineries. It is stored and transported in a liquid state and vaporizes into a clean-burning energy source that is recognized for its transportability and ease of use relative to other forms of stand alone energy. Residential and commercial uses include heating, cooking, water heating, refrigeration, clothes drying, and incineration. Commercial uses also include metal cutting, drying, container pressurization and charring, as well as use as a fuel for internal combustion engines, such as over-the-road vehicles, forklifts, and stationary engines. Agricultural uses include brooder heating, stock tank heating, crop drying, tobacco curing, and weed control, as well as use as a motor fuel for farm equipment and vehicles. Propane is recognized as a clean alternative transportation fuel "ATF" by the Federal and state governments and is the most widely used ATF in the United States. The Federal government has enacted certain mandates for use of ATF's by government and private fleets under the Clean Air Act of 1990 and Energy Policy Act of 1992. Federal and state governments have also provided various economic incentives for use of ATF's which will positively impact propane demand. The retail propane business is a "margin-based" business in which gross profits depend on the excess of sales price over propane supply costs. Sales of propane to residential and commercial customers, which account for the vast majority of the Company's revenue, have provided a relatively stable source of revenue for the Company. Sales to residential customers accounted for approximately 63.1% of the Company's aggregate propane sales revenue and 69.9% of its aggregate gross margin from propane sales in fiscal year 1999. Historically, this market has provided higher margins than other retail propane sales. Based on fiscal year 1999 propane sales revenue, the customer base consisted of 24.4% commercial and 12.5% agricultural and other customers. While commercial propane sales are generally less profitable than residential retail sales, the Company has traditionally relied on this customer base to provide a steady, noncyclical source of revenues. No single customer accounts for more than 1.0% of revenue from sales. On August 15, 1995, the Company entered into a joint venture with Northwestern Growth Corporation, a subsidiary of Northwestern Public Service Corporation, to acquire the assets of Synergy Group Incorporated, the nation's fifth largest LP gas distributor. The Company acquired, for $30,000, 30% of the common stock of SYN, Inc. ("Synergy"), the acquisition entity. The Company entered into a Management Agreement pursuant to which the Company provided all management of the retail facilities and accounting services at the central office. In exchange for those services, the Company received a $500,000 annual base management fee, an incentive management fee, and $3.25 million annual overhead reimbursement (adjusted annually for inflation). Unless specifically referenced, all information contained herein excludes information pertaining to the Synergy operations. On December 7, 1995, the Company entered into a joint venture with Northwestern Growth Corporation, a subsidiary of Northwestern Public Service Company to acquire the stock of Myers Propane Gas Company, a large Ohio LP gas distributor. The Company acquired 49% of the common stock of Myers Acquisition Company (Myers), the acquisition entity. The Company entered into a Management Agreement pursuant to which the Company provided all management and administrative services. In exchange for those services, the Company was entitled to a management fee upon the attainment of certain performance goals. In December, 1996, the Company and Northwestern Growth Corporation (NGC), completed an agreement for the sale of various interests of the Company in Synergy and Myers and the modification and termination of certain agreements between NGC, Synergy and Myers on the one hand and the Company on the other hand. The agreement terminated the management agreements pursuant to which the Company provided management activities for Synergy and Myers effective December, 1996. The agreement resulted in a payment of $18 million to the Company resulting in a gain reflected on the Statement of Operations of $16.9 million which is net of transaction and other costs and fees. The Company may be entitled to an additional amount based on a third party's indemnification obligations to Synergy. In July, 1999, the Company acquired Tres Hombres, Inc. See Item 13 "Certain Relationships and Related Transactions" for further discussion. Sources of Supply. During 1999, approximately 90% of the Company's propane purchases of its propane supply were on a contractual basis (generally, one year agreements subject to annual renewal). The Company's two largest suppliers provide 16.6% and 16.5% of the total supply purchased by the Company. Supply contracts do not, generally, lock in prices, but rather provide for pricing in accordance with posted prices at the time of delivery or established by current major storage points, such as Mont Belvieu, TX, and Conway, KS. The Company has established relationships with a number of suppliers and believes it would have ample sources of supply under comparable terms to draw upon to meet its propane requirements if it were to discontinue purchasing from its two major suppliers. The Company takes advantage of the spot market as appropriate. The Company has not experienced a shortage that has prevented it from satisfying its customer's needs and does not foresee any significant shortage in the supply of propane. Distribution. The Company purchases propane at refineries, gas processing plants, underground storage facilities, and pipeline terminals and transports the propane by railroad tank cars and tank trailer trucks to the Company's retail service centers, each of which has bulk storage capacity ranging from 16,000 to 180,000 gallons. The Company is a shipper on all major interstate LPG pipeline systems. The retail service centers have an aggregate storage capacity of approximately 8.2 million gallons of propane, and each service center has equipment for transferring the gas into and from the bulk storage tanks. The Company operates 9 over-the-road tractors and 11 transport trailers to deliver propane and consumer tanks to its retail service centers and also relies on common carriers to deliver propane to its retail service centers. Deliveries to customers are made by means of 270 propane delivery trucks owned by the Company. Propane is stored by the customers on their premises in stationary steel tanks generally ranging in capacity from 25 to 1,000 gallons, with large users having tanks with a capacity of up to 30,000 gallons. Most of the propane storage tanks used by the Company's residential and commercial customers are owned by the Company and leased, rented, or loaned to customers. Operations. The Company has organized its operations in a manner that the Company believes enables it to provide excellent service to its customers and to achieve operating efficiencies. Personnel located at the retail service centers in the various regions are primarily responsible for customer service and sales. A number of functions are centralized at the Company's corporate headquarters in order to achieve certain operating efficiencies as well as to enable the personnel located in the retail service centers to focus on customer service and sales. The corporate headquarters and the retail service centers are linked via a computer system. Each of the Company's primary retail service centers is equipped with a computer connected to the central management information system in the Company's corporate headquarters. This computer network system provides retail company personnel with accurate and timely information on pricing, inventory, and customer accounts. In addition, this system enables management to monitor pricing, sales, delivery, and the general operations of its numerous retail service centers and to plan accordingly to improve the operations of the Company. The Company makes centralized purchases of propane through its corporate headquarters for resale to the retail service centers enabling the Company to achieve certain advantages, including price advantages, because of its status as a large volume buyer. The functions of cash management, accounting, taxes, payroll, permits, licensing, asset control, employee benefits, human resources, and strategic planning are also performed on a centralized basis. Factors Influencing Demand. Because a substantial amount of propane is sold for heating purposes, the severity of winter weather and resulting residential and commercial heating usage have an important impact on the Company's earnings. Approximately two-thirds of the Company's retail propane sales usually occur during the five months of November through March. Sales and profits are subject to variation from month to month and from year to year, depending on temperature fluctuations. Competition. The Company encounters competition from a number of other propane distributors in each geographic region in which it operates. The Company competes with these distributors primarily on the basis of service, stability of supply, availability of consumer storage equipment, and price. Propane competes primarily with natural gas, electricity and fuel oil principally on the basis of price, availability and portability. The Company also competes with suppliers of electricity. Generally speaking, the cost of propane compares favorably to electricity allowing the Company to enjoy a competitive advantage due to the higher costs of electricity. Fuel oil does not present a significant competitive threat in the Company's primary service areas due to the following factors: (i) propane is a residue-free, cleaner energy source, (ii) environmental concerns make fuel oil relatively unattractive, and (iii) fuel oil appliances are not as efficient as propane appliances. Although propane is generally more expensive than natural gas on an equivalent BTU basis comparison, propane serves as an alternative to natural gas in rural areas where natural gas is not available. Propane is also utilized by natural gas customers on a stand-by basis during peak demand periods. The costs involved in building or connecting to a natural gas distribution system have tempered natural gas growth in most of the Company's trade territory. Risks of Business. The Company's propane operations are subject to all the operating hazards and risks normally incident to handling, storing, and transporting combustible liquids, such as the risk of personal injury and property damages caused by accident or fire. Effective July 1, 1999, the Company's comprehensive general, auto and excess liability policy provides for losses of up to $101.0 million with a $250,000 self-insured retention for general and excess liability losses with a $1 million aggregate cap. The Company's combined auto and workers' compensation coverage is fully insured with no self-insured retention. Previously, the Company retained $250,000 per occurrence on the auto and worker's compensation programs. REGULATION The Company's operations are subject to various federal, state, and local laws governing the transportation, storage and distribution of propane, occupational health and safety, and other matters. All states in which the Company operates have adopted fire safety codes that regulate the storage and distribution of propane. In some states these laws are administered by state agencies, and in others they are administered on a municipal level. Certain municipalities prohibit the below ground installation of propane furnaces and appliances, and certain states are considering the adoption of similar regulations. The Company cannot predict the extent to which any such regulations might affect the Company, but does not believe that any such effect would be material. It is not anticipated that the Company will be required to expend material amounts by reason of environmental and safety laws and regulations, but inasmuch as such laws and regulations are constantly being changed, the Company is unable to predict the ultimate cost to the Company of complying with environmental and safety laws and regulations. All Star Gas currently meets and exceeds Federal regulations requiring that all persons employed in the handling of propane gas be trained in proper handling and operating procedures. All employees have participated, or will participate within 90 days of their employment date, in hazardous materials training. The Company has established ongoing training programs in all phases of product knowledge and safety including participation in the National Propane Gas Association's ("NPGA") Certified Employee Training Program. EMPLOYEES As of September 15, 1999 the Company had approximately 604 employees, none of whom was represented by unions. The Company has never experienced any significant work stoppage or other significant labor problems and believes it has good relations with its employees. ITEM 3. LEGAL PROCEEDINGS. The Company and its subsidiaries are defendants in various routine litigation incident to its business, none of which is expected to have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company held its annual shareholder meeting on July 17, 1999. The only matter presented for a vote was the re-election of Kristin L. Lindsey and Bruce M. Withers, Jr. as directors. Mrs. Lindsey and Mr. Withers were re-elected with 1,547,410 votes cast in favor and no votes cast against, withheld or abstaining. The term of office of the following directors continued after the meeting: Paul S. Lindsey, Jr., Kristin L. Lindsey, Jim J. Shoemake, and Bruce M. Withers, Jr. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. As of September 24, 1999, the Company's Common Stock was held of record by 9 shareholders. There is currently no active trading market in the Company's Common Stock. As of September 24, 1999, there are outstanding warrants to purchase 175,536 shares of the Company's Common Stock. Each warrant represents the right to purchase one share of the Company's Common Stock of $.01 per warrant. The warrants are exercisable currently and will expire July 15, 2004. No dividends on the Common Stock of the Company were paid during the Company's 1998 or 1999 fiscal years. The indenture relating to the 12 7/8% Senior Secured Notes due 2004 and the terms of the Company's revolving credit facility each contain dividend restrictions that prohibit the Company from paying common stock cash dividends. As a result, the Company has no current intention of paying cash dividends on the Common Stock. ITEM 6. SELECTED FINANCIAL DATA. The following table presents selected consolidated operating and balance sheet data of All Star Gas as of and for each of the years in the five-year period ended June 30, 1999. The financial data of the Company as of and for each of the years in the five-year period ended June 30, 1999, were derived from the Company's audited consolidated financial statements. The financial and other data set forth below should be read in conjunction with the Company's consolidated financial statements, including the notes thereto, included with this report.
YEAR ENDED JUNE 30, --------------------------------------------- 1995 1996 1997 1998 1999 (IN THOUSANDS EXCEPT RATIOS AND PER SHARE AMOUNTS) OPERATING DATA: Operating revenue $74,090 $82,702 $94,543 $86,510 79,537 Gross profit (1) 38,478 39,384 41,468 44,094 42,954 Operating expenses 29,144 27,987 28,853 29,747 28,944 Depreciation & amortization 6,166 6,770 6,867 9,334 9,359 Operating income 3,168 4,627 5,748 5,013 4,651 INTEREST EXPENSE: Cash interest 10,681 10,657 10,605 11,391 11,713 Amortization of debt discount & expenses 4,889 5,476 6,140 6,796 7,762 Total interest expense 15,570 16,133 16,745 18,187 19,475 Net income (loss) before extraordinary items (2) (8,726) (7,897) 2,222 (9,954) (9,627) OTHER OPERATING DATA: Capital expenditures 11,874 8,838 13,340 17,384 4,478 Cash from sale of retail service centers and other assets 2,956 6,177 5,478 2,821 3,131 EBITDA (3) 8,784 11,002 13,347 14,007 14,010 Basic & diluted income (loss) per share before extraordinary items $(5.53) $(5.00) $(1.41) $(6.36) $(6.16) YEAR ENDED JUNE 30, ----------------------------------------------- 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- BALANCE SHEET DATA: Total assets $105,128 $102,002 $107,832 $113,788 $105,463 Long-term debt (including current maturities) 115,647 122,858 126,632 142,350 146,583 Stockholders' equity (deficit) (36,946) (44,843) (42,720) (52,674) (62,301)
(1) Represents operating revenue less the cost of products sold. (2) All Star Gas did not declare or pay dividends on its common stock during the five-year period ending June 30, 1999. (3) EBITDA consists of earnings before depreciation, amortization, interest, income taxes, and other non-recurring expenses. EBITDA is presented here because it is a widely accepted financial indicator of a highly leveraged company's ability to service and/or incur indebtedness. However, EBITDA should not be construed as an alternative either (i) to operating income (determined in accordance with generally accepted accounting principles) or (ii) to cash flows from operating activities (determined in accordance with generally accepted accounting principles). ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company's results of operations, financial condition and liquidity should be read in conjunction with the historical consolidated financial statements of All Star Gas and the notes thereto included in this Report. RESULTS OF OPERATIONS Fiscal Years Ended June 30, 1999 and June 30, 1998 Operating Revenue. Operating revenue decreased $7.0 million, or 8.l% to $79.5 million in fiscal year 1999 as compared to $86.5 million in fiscal year 1998. The decrease was primarily due to a $6.6 million decrease in propane sales which was the result of a 4% decrease in the gallons sold and a 10% lower average propane sales price. Propane sales prices decreased an average of $.036 per gallon under fiscal 1998 which was the result of lower wholesale prices which are discussed in the cost of products sold section. The decrease in gallons is a direct result of the significantly warmer than normal weather experienced by the Company in its marketing territories during the heating season. Heating degree days experienced by the Company during fiscal year 1999 decreased 5% from fiscal 1998. Cost of products sold. Costs of products sold decreased $5.8 million or 13.7% to $36.6 million in fiscal year 1999 as compared to $42.4 million in fiscal year 1998. This was due to lower average wholesale propane costs and the decrease in gallons sold outlined above. In fiscal year 1999, the propane industry experienced higher than historical inventory levels in both the domestic and Canadian markets. Combined with warmer winter weather, which depressed demand and lowered crude oil prices, these large inventories have resulted in significantly lower product costs. Gross Profit. The Company's gross profit for the year decreased $1.1 million to $43.0 million in fiscal year 1999 as compared to $44.1 million in fiscal year 1998. This decrease is primarily due to the decrease in gallons sold due to the warmer than normal heating season in the Company's marketing territories partially offset by a 3.1% improvement in operating margin. General and administrative expenses. General and administrative expenses decreased $500,000 to $29.2 million in fiscal 1999 compared to $29.7 million in 1998. The majority of the decrease was due to a $372,000 decrease in transportation costs as a result of the lower cost of fuel and small reductions in various general and administrative expense categories resulting from the continued downsizing of the Company's corporate office staffing levels. Provision for doubtful accounts. The provision for doubtful accounts decreased $115,000 or 33.6% from $342,000 in fiscal 1998 to $227,000 in fiscal 1999. The decrease is a result of enhanced credit and collection efforts which reduced the Company's receivables and past due amounts. Depreciation and amortization. Depreciation and amortization expense increased slightly to $9.4 million in fiscal 1999 from $9.3 million in fiscal 1998. This increase is due primarily to the addition of fixed assets through the acquisition of retail service centers occurring in the 1998 fiscal year and the current period. Depreciation expense on modernization expenditures and other asset purchases also contributed to the increase in fiscal 1999. During fiscal 1999, the Company utilized approximately $3.6 million for the purchase of new consumer storage tanks and other property and equipment. Interest expense. Interest expense increased approximately $300,000 to $ll.7 million in fiscal 1999 from $ll.4 million in fiscal 1998 primarily due to the increased mortgage obligation debt service resulting from recent acquisitions and interest costs associated with the Company's working capital facility. Fiscal Years Ended June 30, 1998 and June 30, 1997 Operating Revenue. Operating revenue decreased $8.0 million, or 8.5% to $86.5 million in fiscal year 1998 as compared to $94.5 million in fiscal year 1997. The decrease was primarily due to an $8.2 million decrease in propane sales which was the result of 15.3% lower propane sales prices offset by a 10.4% increase in gallons sold. Propane sales prices decreased an average of 14.8(cent) per gallon over fiscal 1997 which was the result of lower wholesale prices which are discussed in the cost of products sold section. Cost of products sold. Cost of products sold decreased $10.7 million, or 20.1%, to $42.4 million in fiscal year 1998 as compared to $53.1 million in fiscal year 1997. This was due to lower average wholesale propane costs of 13.7(cent) per gallon. In fiscal year 1998, the propane industry has experienced higher than historical supply levels in both the domestic and Canadian markets. Combined with warmer winter weather, which has depressed demand, these large supplies have resulted in significantly lower product costs. Lower costs were partially offset by increased volumes from net acquisitions and dispositions of retail service centers. The decrease in cost of propane products sold was partially offset by an increase in cost of gas systems and appliances of $130,000. Gross profit. The Company's gross profit for the year increased $2.6 million to $44.1 million in fiscal year 1998 as compared to $41.5 million in fiscal year 1997. This increase is primarily due to a $2.6 million improvement in propane sales gross profit. Propane sales gross profits increased as margins per gallon remained relatively stable while volumes increased 10.4% in fiscal 1998 as compared to fiscal 1997. Other improvements to gross profit are the result of increased income from rental and leasing activities of $222,000 and increased emphasis of selling value added services through a service labor increase of $123,000. These improvements were partially offset by a decrease in margins on gas systems and appliances of $195,000. General and administrative expense. General and administrative expenses increased $2.1 million to $29.7 million in fiscal 1998 compared to $27.6 million in fiscal 1997. The majority of the increase is due to the elimination of the overhead reimbursement associated with the management of SYN Inc. that was terminated in December 1996. This reimbursement was $1.4 million for the year ending June 30, Other notable changes include an increase in salaries and employee benefits of $765,000 in fiscal 1998 mainly due to increased personnel associated with the acquisition of retail service centers. Transportation expenses increased $402,000 due to the increased maintenance costs of the Company's aircraft and the improvement and upgrading of its trucks and equipment. The Company has, however, been able to recognize cost savings in professional expenses, which decreased $295,000 over fiscal 1997. Professional expenses decreased $295,000 over fiscal 1997 due to the additional costs in 1997 associated with a proposed restructuring of the company's debt and equity which was abandoned. Provision for doubtful accounts. The provision for doubtful accounts decreased $140,000, or 29.2%, from $483,000 in fiscal 1997 to $342,000 in fiscal 1998. The decrease is a result of the enhanced credit and collection efforts begun in fiscal 1995 as well as a reflection of the upgrade in customers during the same time frame. The Company also tied certain employees' incentive compensation to credit and collection results. Depreciation and amortization. Depreciation and amortization expense increased $2.4 million to $9.3 million in fiscal 1998 from $6.9 million in fiscal 1997. This increase is due primarily to the addition of fixed assets through the acquisition of retail service centers occurring in the 1997 fiscal year and the current period. Depreciation expense on modernization expenditures and other asset purchases also contributed to the increase in fiscal 1998. Interest expense. Interest expense increased approximately $800,000 to $11.4 million in fiscal 1998 from $10.6 million in fiscal 1997 primarily due to the increased mortgage obligation debt service resulting from recent acquisitions. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements have arisen primarily from funding its working capital needs, capital expenditures, and debt service requirements. Historically, the Company has met these requirements from cash flows generated by operations and from borrowings under its working capital facility. Cash flow provided by operating activities was $5.2 million in fiscal year 1999 as compared to the cash flow provided in fiscal year 1998 of $5.6 million. This change is due to the Company's increasing certain accrued liabilities and carrying lower levels of inventory. Cash flow used in investing activities was $1.8 million in fiscal year 1999 as compared to cash flow used of $8.4 million in fiscal year 1998. The majority of the change related to the reduced acquisition and capital expenditure activity in fiscal 1999. Cash flow used in financing activities was $3.0 million in fiscal year 1999 as compared to cash flow provided of $2.7 million in fiscal 1998. The change is primarily due to a $4.8 million decrease in net borrowings on the Company's working capital facility. Pursuant to the Indenture for the 12-7/8% Senior Secured Notes, the Company was required to make a $4.5 million, semi-annual interest payment on each July 15 and January 15. Beginning in fiscal year 2000, the semi-annual cash interest payment on the Notes will increase to $8.2 million. The Company utilized its 30 day grace period for the January 1999 and July 1999 interest payments. The Company experienced a shortage in cash flow due to the unusually warm weather and lower petroleum prices which have caused a decrease in customer demand for prepaid gas contracts. The Company met the scheduled payments through the use of operating cash flows, available borrowings on its working capital facility and loans from its principal shareholder. The Company has net working capital and stockholders' equity deficiencies. The Company is considering several alternatives for mitigating these conditions which include exploring financing and recapitalization alternatives and the continued divestiture of non-core assets. Capital expenditures have been high over the past three fiscal years as the Company has upgraded and improved its trucks, equipment and plants. During the past two fiscal years, the Company has also incurred costs related to the change of the Company name on its retail facilities and the renovation of an existing building which was converted into the corporate facilities for the Company allowing the Company to exit an expensive lease agreement. The Year 2000 problem concerns the inability of information systems to recognize and process date- sensitive information properly from and after January 1, 2000. To minimize or eliminate the effect of the year 2000 problem on the Company's information systems and applications, the Company is continually identifying, evaluating, implementing and testing changes to its computer systems, applications and software necessary to achieve Year 2000 compliance. The Company has given an Executive officer of the Company responsibility to identify, evaluate and implement a plan to bring all of the Company's critical business systems and applications into Year 2000 compliance prior to December 31, 1999. The year 2000 initiative consists of four phases: (I) identification of all critical business systems subject to Year 2000 risk (the "Identification Phase"), (ii) assessment of such business systems and applications to determine the method of correcting any Year 2000 problems (the "Assessment Phase"); (iii) implementing the corrective measures (the "Implementation Phase"); and (iv) testing and maintaining system compliance (the "Testing Phase"). The Company has substantially completed the Identification, Assessment and Implementation Phases and has identified and assessed four areas of risk; (i) third party vendor software, such as business applications and operating systems; (ii) computer hardware components; (iii) electronic data transfer systems between the Company and its suppliers and customers; and (iv) embedded systems, such as phone switches. Although no assurances can be made, the Company believes that it has identified substantially all of its systems, applications and related software that are subject to Year 2000 compliance risk and has either implemented or initiated the implementation of a plan to correct such systems that are not Year 2000 compliant. The Company does not anticipate completion of the Testing Phase until sometime prior to December 1999. The Company relies on third party service providers for services such as telecommunications, internet service, utilities and other key services as well as other third parties such as customers and suppliers. Interruption of those services and business due to Year 2000 issues could affect the Company's operations. The Company has developed a course of action to determine the status of such third party service providers, customers and suppliers to determine alternative and contingency requirements. While approaches to reducing risks of interruption of business operations vary, options include identification of alternative service providers, customers and suppliers available to provide such service and business if such third parties fail to become Year 2000 compliant within an acceptable time frame prior to December 31, 1999. Since the Company has recently updated its information systems (which have been certified to be Year 2000 compliant by the vendors) in the ordinary course of business, there has not been any additional cost incurred by the Company in connection with its Year 2000 compliance plan other than as would have been incurred in the ordinary course. The Company has been expensing and capitalizing the costs of updating its information systems and therefore its Year 2000 compliance plan in accordance with appropriate accounting policies. The Company does not believe that it will incur significant future costs for remediation in connection with Year 2000 compliance. In the event the Year 2000 modifications and conversions are not adequate, the Year 2000 problem could have a material impact on the operations and financial condition of the Company. The Company is in the stages of developing alternative plans in the event that a business interruption occurs from a Year 2000 issue. The Company has targeted the late fall of 1999 as the date of substantially completing its contingency plans, however, the Company believes that this phase will be on going through the year 2000. THE ESTIMATES AND CONCLUSIONS HEREIN ARE FORWARD-LOOKING STATEMENTS AND ARE BASED ON MANAGEMENT'S BEST ESTIMATES OF FUTURE EVENTS. RISKS OF COMPLETING THE PLAN INCLUDE THE AVAILABILITY OF RESOURCES, THE ABILITY TO DISCOVER AND CORRECT THE POTENTIAL YEAR 2000 SENSITIVE PROBLEMS WHICH COULD HAVE A SERIOUS IMPACT ON CERTAIN OPERATIONS AND THE ABILITY OF THE COMPANY'S SERVICE PROVIDERS, CUSTOMERS AND SUPPLIERS TO BRING THEIR SYSTEMS INTO YEAR 2000 COMPLIANCE. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the Consolidated Financial Statements included elsewhere herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The directors and executive officers of the Company are as follows: POSITION HELD WITH THE COMPANY NAME AGE AND PRINCIPAL OCCUPATION ---- --- ------------------------------ Paul S. Lindsey, Jr. 54 Chairman of the Board, Chief Executive Officer, and President since June 1994; previously Vice Chairman of the Board (1987 to 1994) and Chief Operating Officer (1988 to 1994); term as director expires 2000 Kristin L. Lindsey 51 Director/Executive Vice President since Oct. 1996; previously Director/Vice President to June 1994; previously pursued charitable and other personal interest; term as director expires 2002 Bruce M. Withers, Jr. 72 Director since June 1994; previously Chairman and Chief Executive Officer of Trident NGL Holding, Inc. (since August 1991) and President of the Transmission and Processing Division of Mitchell Energy Corporation (1979 to 1991); term as director expires 2002 Jim J. Shoemake 61 Director since June 1994; partner of Guilfoil, Petzall & Shoemake (since 1970); term as director expires 2001 Valeria Schall 45 Executive Vice President since October, 1996, Treasurer since July, previously Vice President since 1992; Corporate Secretary since 1985 and Assistant to the Chairman since 1987 James M. Trickett 49 Chief Operating Officer since 1997, Sr. Vice President since September 1997; previously Divisional Manager since June 1996, and Regional Manager since August 1995. Divisional Manager with Synergy Gas Corporation since 1990. Robert C. Heagerty 52 Sr. Vice President since September 1997, previously Divisional Vice President since June 1993; previously Regional Manager since December 1986. J. Greg House, Sr. 42 Vice President - Management Information Systems since June, 1996; previously Director-MIS since September 1994 and Manager-MIS Paul Mueller Co. since 1987. Bradley L. Beneke 45 Vice President since April 1999; previously Pricing Director since June 1995; previously Regional Manager since September 1991. Each director will serve for a term of three years. Officers of the Company are elected by the Board of Directors of the Company and will serve at the discretion of the Board, except for Mr. Lindsey who is employed pursuant to an employment agreement that expires June 24, 2004. ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION The following table provides compensation information for each of the years ended June 30, 1999, 1998, and 1997 for (i) the Chief Executive Officer of the Company, (ii) the four other executive officers of the Company who are most highly compensated and whose total compensation exceeded $100,000 for the most recent fiscal year (of which there were only two) and (iii) those persons who are no longer executive officers of the Company but were among the four most highly compensated and whose total compensation exceeded $100,000 for the most recent year (of which there were none).
SUMMARY COMPENSATION TABLE Annual Compensation PRINCIPAL POSITION AT END OF FISCAL YEAR FISCAL OTHER ANNUAL ALL OTHER NAME 1999 YEAR SALARY BONUS COMPENSATION COMPENSATION - ----------------- --------------------- ----- ------- -------- ------------- ------------ Paul S. Lindsey, Jr. Chief Executive Officer, 1999 $400,000 ----- ----- ----- Chairman of the Board and 1998 $400,000 ----- ----- ----- President 1997 $350,000 $750,000 ----- ----- Valeria Schall Executive Vice President 1999 $100,000 $30,000 ----- ----- 1998 $100,000 $35,000 ----- ----- 1997 $73,500 $32,500 ----- ----- Kristin L.Lindsey Executive Vice President 1999 $100,000 $30,000 ----- ----- and Director 1998 $100,000 $35,000 ----- ----- 1997 $73,500 $32,500 ----- -----
EMPLOYMENT AGREEMENT On June 24, 1999, the Company entered into an employment agreement with Mr. Lindsey. The agreement has a five-year term and provides for the payment of an annual salary of $400,000 and reimbursement for reasonable travel and business expenses. The agreement requires Mr. Lindsey to devote substantially all of his time to the Company's business. The agreement is for a term of five years, but is automatically renewed for one year unless either party elects to terminate the agreement at least four months prior to the end of the term or any extension. The agreement may be terminated by Mr. Lindsey or the Company, but if the agreement is terminated by the Company and without cause, the Company must pay one year's salary as severance pay. INCENTIVE STOCK OPTION PLAN There were no options granted to the named officer nor exercised by him during fiscal year 1999 and no unexercised options held by him as of the end of the 1999 fiscal year. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION A compensation committee was formed in July 1994, consisting of Messrs. Withers, Shoemake, and Brown. Mr. Lindsey makes the initial recommendation concerning executive compensation for the executive officers of the Company, other than recommendations concerning his own and his wife's compensation, which are then approved by the compensation committee. The compensation committee determines the compensation of Mr. Lindsey's wife and, subject to the employment agreement described above, Mr. Lindsey. DIRECTOR COMPENSATION During the last completed fiscal year, the directors of All Star Gas received an annual fee of $25,000, payable quarterly, for their services. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The table below sets forth information with respect to the beneficial ownership of shares of Common Stock of the Company as of September 24, 1999, by persons owning more than five percent of any class, by all directors of the Company, by the individuals named in the Summary Compensation Table owning shares, and by all directors and executive officers of the Company as a group. Number of Shares Name of Beneficial Owner (1) Beneficially Owned Percent - -------------------------------- ----------------------- ----------------- Paul S. Lindsey, Jr. (2) 1,507,610 58.9 Kristin L. Lindsey (2) 753,805 29.4 Valeria Schall 79,603 6.8 Bruce M. Withers, Jr. 39,248 4.5 Jim J. Shoemake 39,248 4.5 All directors and executive officers as a group (9 persons)(3) 2,281,139 89.1 - ----------------- (1) The address of each of the beneficial owners is c/o All Star Gas Corporation, P.O. Box 303, 119 W. Commercial Street, Lebanon, Missouri 65536. (2) Mr. Lindsey's shares consist of 753,805 shares owned by the Paul S. Lindsey, Jr. Trust established January 24, 1992 and 753,805 shares owned by the Kristin L. Lindsey Trust established January 24, 1992. Mr. Lindsey has the power to vote and to dispose of the shares held in the Kristin L. Lindsey Trust. Mrs. Lindsey's shares consist of the shares owned by the Kristin L. Lindsey Trust. Mrs. Lindsey disclaims ownership of the shares held by her husband in the Paul S. Lindsey, Jr. Trust. (3) The amounts shown include the shares beneficially owned by Mr. Lindsey and Mrs. Lindsey as set forth above, and 543,532 shares owned by other executive officers. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Mrs. Kristin L. Lindsey, who beneficially owns approximately 33.51% of the Company's outstanding Common Stock and is a Director of the Company, is the majority stockholder in a company that supplies paint and labels to the Company. The Company's purchases of paint and labels from this company totaled $250,000 in fiscal year 1999 and $189,000 in fiscal year 1998. The Company has entered into an agreement with each shareholder (all of whom are directors or employees of the Company) providing the Company with a right of first refusal with respect to the sale of any shares by such shareholders. In addition, the Company has the right to purchase from such shareholders all shares they hold at the time of their termination of employment with the Company at the then current fair market value of the shares. The fair market value is determined in the first instance by the Board of Directors and by an independent appraisal (the cost of which is split between the Company and the departing shareholder) if the departing shareholder disputes the board's determination. The Company entered into an operating lease with its Chief Executive Officer to lease a turbo prop aircraft for use in Company travel. The lease requires $95,000 in annual payments for a term of 3 years beginning in January, 1998. Over the past fiscal year, the Company received advances bearing interest at a rate of 12% from its Chief Executive Officer in the amount of $3.4 million which have a remaining balance at October 13, 1999, of $400,000. Effective July 2, 1999, the Company acquired Tres Hombres, Inc., a restaurant chain substantially owned by the principal shareholder of the Company. The transaction was consummated through an exchange of voting common stock and is being accounted for in a manner similar to a pooling of interests. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1)Financial Statements Report of Independent Accountants Consolidated Balance Sheets as of June 30, 1999 and 1998 Consolidated Statement of Operations for the Years Ended June 30, 1999, 1998, and 1997 Consolidated Statements of the Stockholders' Equity (Deficit) for the Years Ended June 30, 1999, 1998, and 1997 Consolidated Statements of Cash Flows for the Years Ended June 30, 1999, 1998, and 1997 (a)(2)Financial Statement Schedules Schedule II Valuation and qualifying accounts (a)(3)Exhibits EXHIBIT NO. DESCRIPTION 3.1 Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (No. 33-53343) 3.2 Certificate of Amendment of the Certificate of Incorporation of the Company, dated April 26, 1994, relating to the change of name (incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (No. 33-53343) 3.3 By-laws of the Company (incorporated herein by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 (No. 33-53343) 4.1 Indenture between All Star Gas Corporation and J. Henry Schroder Bank & Trust company, Trustee, relating to the 9% Subordinated Debentures due December 31, 2007, and the form of 9% Subordinated Debentures due December 31, 2007, (incorporated herein by reference to Exhibit 4(a) to the All Star Incorporated and Exco Acquisition Corp. (Commission File No. 2-83683) Registration Statement on Form S-14 with the Commission on May 11, 1983); and First Supplemental Indenture thereto between All Star Gas Corporation (now known as EGOC) and IBJ Schroder Bank & Trust Co., dated as of December 13, 1989, (incorporated herein by reference to Exhibit 4(c) to All Star Gas Corporation (now known as EGOC) Registration Statement on Form 8-B filed with the Commission on February 1, 1990) 4.2 Indenture between the Company and Shawmut Bank Connecticut, National Association, Trustee, relating to the 12-7/8% Senior Secured Notes due 2004, including the 12-7/8% Senior Secured Notes due 2004, the Guarantee and the Pledge Agreement (incorporated herein by reference to Exhibit 4.2 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1994) 4.3 Warrant Agreement (incorporated herein by reference to Exhibit 4.3 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1994) 10.1 Shareholder Agreement, dated as of October 28, 1988, by and among All Star Gas Acquisition Corporation and Robert W. Plaster Trust, Robert W. Plaster, Trustee; Paul S. Lindsey, Jr.; Stephen R. Plaster Trust, Lynn C. Hoover, Trustee; Cheryl Plaster Schaefer Trust, Lynn C. Hoover, Trustee; Robert L. Wooldridge; Gwendolyn B. VanDerhoef; Dwight Gilpin; Luther Henry Gill; Valeria Schall; Floyd J. Waterman; Larry W. Bisig; Larry Weis; Robert Heagerty; Murl J. Waterman; Earl L. Noe; Thomas Flak; Michael Kent St. John; James E. Acreman; Carolyn Rein; Dan Weatherly; Nina Irene Craighead; Joyce Sue Kinnett; Edwin H. McMahon; Paul Stahlman; Ralph Wilson; Alan Simer; Ferrell Stamper; and All Star Gas Corporation Employee Stock Ownership Plan, Robert W. Plaster, Trustee (incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (No. 33-53343) 10.2 1995 Stock Option Plan of All Star Gas Company (incorporated herein by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1995) 10.3 Lease Agreement, dated May 7, 1994, between the Company and Evergreen National Corporation (incorporated herein by reference to Exhibit F of Exhibit 10.1 to the All Star Gas Operating Corporation (Commission File No. 1-6537-3) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994) 10.4 Services Agreement, dated May 7, 1994, between the Company and All Star Service Corporation (incorporated herein by reference to Exhibit G of Exhibit 10.1 to the All Star Gas Operating Corporation (Commission File No. 1-6537-3) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994) 10.5 Non-Competition Agreement, dated May 7, 1994, by and among the Company, Energy, Robert W. Plaster, Stephen R. Plaster, Joseph L. Schaefer, Paul S. Lindsey, Jr. (incorporated herein by reference to Exhibit E of Exhibit 10.1 to the All Star Gas Operating Corporation (Commission File No. 1-6537-3) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994) 10.6 Employment Agreement between the Company and Paul S. Lindsey, Jr. (incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement on Form S- 1 (No. 33-53343) 10.7 Asset Purchase Agreement by and among the Company, All Star Gas, Inc. of North Carolina, PSNC Propane Corporation, and Public Service Company of North Carolina, Incorporated (incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 (No. 33-533343) 10.8 Indemnification Agreement between the Company and Douglas A. Brown (incorporated herein by reference to Exhibit 10.9 to the Company's Registration Statement on Form S- 1 (No. 33-53343) 10.9 Tax Indemnification Agreement between the Company and Energy (incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 (No. 33-53343) 10.10 Supply Contract No. 1, dated June 1, 1993, between EGOC and Warren Petroleum Company (incorporated herein by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1 (No. 33-53343) 10.11 Supply Contract No. 2, dated June 1, 1993, between EGOC and Warren Petroleum Company (incorporated herein by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1 (No. 33-53343) 10.12 Management Agreement between All Star Gas Company, Northwestern Growth Corporation and SYN, Inc. dated May 17, 1995 (incorporated herein by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1995) 10.13 Agreement Among Initial Stockholders and SYN, Inc. dated May 17, 1995 (incorporated herein by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1995). 10.14 Waiver Agreement dated April 29, 1995 by and among All Star Gas Corporation, SYN, Inc., Paul S. Lindsey, Jr. Northwestern Growth Corporation, All Star Energy Corporation, Robert W. Plaster, and Stephen R. Plaster (incorporated herein by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1995). 10.15+ Propane Sales Agreement dated August 24, 1995, between All Star Gas Corporation and Warren Petroleum Company (incorporated herein by reference to Exhibit 10.16+ to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996). 10.16+ Supply Contract dated April 27, 1995, between All Star Gas Corporation and Phillips 66 Company (incorporated herein by reference to Exhibit 10.17+ to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1995). 10.17+ Dealer Sale Contract dated January 20, 1995, between All Star Gas Corporation and Conoco Inc. (incorporated herein by reference to Exhibit 10.18+ to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1995). 10.18+ Supply Contract dated April 24, 1995 between All Star Gas Corporation and Enron Gas Liquids, Inc. (incorporated herein by reference to Exhibit 10.19+ to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1995). 10.19 7/1/96 Agreement Amending Amended and Restated Agreement Among Initial Stockholders and Syn Inc. (incorporated herein by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1997). 10.20 11/3/95 Agreement Among Initial Stockholders and Mac Inc. (incorporated herein by reference to Exhibit 10.25 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996). 10.21 11/3/95 Management Agreement between NWPS, Myers Acquisition Company and Empire (incorporated herein by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996) 10.22 7/31/95 Agreement Amending Management Agreement (incorporated herein by reference to Exhibit 10.28 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996). 10.23 7/31/95 Agreement Amending and Reinstating Agreement Among Initial Stockholders and Syn Inc. (incorporated herein by reference to Exhibit 10.29 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996). 10.24+ Propane Sales Agreement dated April 9, 1996, between All Star Gas Corporation and Warren Petroleum Company (incorporated herein by reference to Exhibit 10.30+ to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996). 10.25+ Amendment to Supply Contract dated August 15, 1994, between All Star Gas Corporation and Phillips 66 Company (incorporated herein by reference to Exhibit 10.31+ to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996). 10.26+ Supply Contract dated April 1, 1996, between All Star Gas Corporation and Conoco, Inc. (incorporated herein by reference to Exhibit 10.32+ to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996). 10.27 June 1, 1996, Lease of Aircraft between Paul S. Lindsey, Limited Liability Company and All Star Gas Corporation (incorporated herein by reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996). 10.28+ Liquified Petroleum Gas Contract dated July 1, 1996 between All Star Gas Corporation and Shell Anacortes Refining Company (incorporated herein by reference to Exhibit 10.34+ to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996). 10.29+ Liquified Petroleum Gas Contract dated July 1, 1996 between All Star Gas Corporation and Shell Oil Company (incorporated herein by reference to Exhibit 10.35+ to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996). 10.30+ Propane Sales Agreements between All Star Gas Corporation and Warren Petroleum Company (incorporated herein by reference to Exhibit 10.36+ to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996). 10.31+ Liquified Petroleum Gas Contract dated June 1, 1996 between All Star Gas Corporation and Shell Oil Company (incorporated herein by reference to Exhibit 10.37+ to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996). 10.32 December 31, 1997, Lease of Aircraft Agreement between Paul S. Lindsey, LLC, and All Star Gas Corporation (incorporated herein by reference to Exhibit 10.43 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1998). 10.33 Financing Agreement by and among All Star Gas Corporation and Ableco Finance LLC dated March 12, 1999 (incorporated herein by reference to Exhibit 10 to the Registrant's Quarterly Report on Form 10(q) for the quarter ended March 31, 1999). 21.1 Subsidiaries of the Company 27.1 Financial Data Schedules - ------------ + Confidential treatment has been requested. The copy filed as an exhibit omits the information subject to the confidentiality request. (b) Reports on Form 8-K January 15, 1999 July 15, 1999 April 6, 1999 May 18, 1999 (c) Exhibits See (a)(3) above. (d) Financial Statements See (a)(1) above. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. All Star Gas Corporation By: /s/ Paul S. Lindsey, Jr. Paul S. Lindsey, Jr. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE CAPACITY IN WHICH SIGNED DATE /s/ Paul S. Lindsey, Jr. Chief Executive Officer and October 13, 1999 - ------------------------------- Paul S. Lindsey, Jr. Chairman of the Board of All Star Gas Corporation (principal executive officer) /s/ Willis D. Green Controller October 13, 1999 - ------------------------------- Willis D. Green (principal financial/accounting officer) /s/ Kristin L. Lindsey Director of All Star Gas October 13, 1999 - ------------------------------- Kristin L. Lindsey Corporation /s/ Bruce M. Withers, Jr. Director of All Star Gas October 13, 1999 - ------------------------------- Bruce M. Withers, Jr. Corporation /s/ Jim J. Shoemake Director of All Star Gas October 13, 1999 - ------------------------------- Jim J. Shoemake Corporation ALL STAR GAS CORPORATION Accountants' Report and Consolidated Financial Statements June 30, 1999, 1998 and 1997 ALL STAR GAS CORPORATION JUNE 30, 1999 AND 1998 CONTENTS Page INDEPENDENT ACCOUNTANTS' REPORT..................................... 1 CONSOLIDATED FINANCIAL STATEMENTS Balance Sheets.................................................... 2 Statements of Operations.......................................... 3 Statements of Stockholders' Equity (Deficit)...................... 4 Statements of Cash Flows.......................................... 5 Notes to Financial Statements..................................... 7 Independent Accountants' Report Board of Directors and Stockholders All Star Gas Corporation Lebanon, Missouri We have audited the accompanying consolidated balance sheets of ALL STAR GAS CORPORATION as of June 30, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ALL STAR GAS CORPORATION as of June 30, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2, the Company has suffered recurring losses from operations and has net working capital and stockholders' equity deficiencies at June 30, 1999. As also discussed in Note 2, the Company's debt service requirements escalate during fiscal year 2000. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. BAIRD, KURTZ & DOBSON Springfield, Missouri August 13, 1999 ALL STAR GAS CORPORATION CONSOLIDATED BALANCE SHEETS JUNE 30, 1999 AND 1998 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS
1999 1998 ---- ---- CURRENT ASSETS Cash $ 1,291 $ 897 Trade receivables, less allowance for doubtful accounts; 1999 - $526, 1998 - $844 4,249 4,526 Inventories 4,773 6,985 Prepaid expenses 901 615 Refundable income taxes 749 1,135 Deferred income taxes 300 312 --------- --------- Total Current Assets 12,263 14,470 --------- --------- PROPERTY AND EQUIPMENT, AT COST Land and buildings 11,483 11,233 Storage and consumer service facilities 77,505 77,732 Transportation, office and other equipment 29,237 29,348 --------- --------- 118,225 118,313 Less accumulated depreciation 42,459 37,323 --------- --------- 75,766 80,990 --------- --------- OTHER ASSETS Debt acquisition costs, net of amortization 3,718 3,086 Excess of cost over fair value of net assets acquired, at amortized cost 11,053 13,202 Notes receivable - related parties 8 676 Due from related parties 841 -- Other 1,814 1,364 --------- --------- 17,434 18,328 --------- --------- $ 105,463 $ 113,788 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1999 1998 ---- ---- CURRENT LIABILITIES Checks in process of collection $ 1,884 $ 1,682 Current maturities of long-term debt 2,252 7,824 Accounts payable 2,224 2,141 Accrued salaries 1,530 1,403 Accrued interest 4,171 4,174 Accrued expenses 831 854 Due to related parties 400 280 Customer prepayments 9,027 8,343 --------- --------- Total Current Liabilities 22,319 26,701 --------- --------- LONG-TERM DEBT 144,331 134,526 --------- --------- DEFERRED INCOME TAXES 794 4,905 --------- --------- ACCRUED SELF-INSURANCE LIABILITY 320 330 --------- --------- STOCKHOLDERS' EQUITY (DEFICIT) Common; $.001 par value; authorized 20,000,000 shares; issued June 30, 1999 and 1998, 14,291,020 shares 14 14 Common stock purchase warrants 1,227 1,227 Additional paid-in capital 27,279 27,279 Retained earnings (deficit) (2,747) 6,880 --------- --------- 25,773 35,400 Treasury stock, at cost; 12,726,970 shares (88,074) (88,074) --------- --------- (62,301) (52,674) --------- --------- $ 105,463 $ 113,788 ========= ========= See Notes to Consolidated Financial Statements
ALL STAR GAS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1999, 1998 AND 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999 1998 1997 ---- ---- ---- OPERATING REVENUE $ 79,537 $ 86,510 $ 94,543 COST OF PRODUCT SOLD 36,583 42,416 53,075 --------- --------- --------- GROSS PROFIT 42,954 44,094 41,468 --------- --------- --------- OPERATING COSTS AND EXPENSES Provision for doubtful accounts 227 342 483 General and administrative 29,264 29,745 27,638 Depreciation and amortization 9,359 9,334 6,867 (Gain) loss on sale of assets (547) (340) 732 --------- --------- --------- 38,303 39,081 35,720 --------- --------- --------- OPERATING INCOME 4,651 5,013 5,748 --------- --------- --------- OTHER INCOME (EXPENSE) Interest expense (11,713) (11,391) (10,605) Amortization of debt discount (7,762) (6,796) (6,140) Gain on SYN/Myers Transaction -- -- 16,922 Restructuring proposal costs -- (910) (1,903) --------- --------- --------- (19,475) (19,097) (1,726) --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES (14,824) (14,084) 4,022 PROVISION (CREDIT) FOR INCOME TAXES (5,197) (4,130) 1,800 --------- --------- --------- NET INCOME (LOSS) $ (9,627) $ (9,954) $ 2,222 ========= ========= ========= BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE $ (6.16) $ (6.36) $ 1.41 ========== ========== ========== See Notes to Consolidated Financial Statements
ALL STAR GAS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED JUNE 30, 1999, 1998 AND 1997 (IN THOUSANDS)
Common Total Stock Additional Stockholders' Common Purchase Paid-In Retained Treasury Equity Stock Warrants Capital Earnings Stock (Deficit) ------ -------- ---------- -------- -------- ----------- BALANCE, JUNE 30, 1996 $ 14 $ 1,227 $ 27,279 $ 14,612 $ (87,975) $ (44,843) TREASURY STOCK PURCHASE -- -- -- -- (99) (99) NET INCOME -- -- -- 2,222 -- 2,222 --------- --------- --------- --------- --------- --------- BALANCE, JUNE 30, 1997 14 1,227 27,279 16,834 (88,074) (42,720) NET LOSS -- -- -- (9,954) -- (9,954) --------- --------- --------- --------- --------- --------- BALANCE, JUNE 30, 1998 14 1,227 27,279 6,880 (88,074) (52,674) NET LOSS -- -- -- (9,627) -- (9,627) --------- --------- --------- --------- --------- --------- BALANCE, JUNE 30, 1999 $ 14 $ 1,227 $ 27,279 $ (2,747) $ (88,074) $ (62,301) ========= ========= ========= ========= ========= ========= See Notes to Consolidated Financial Statements
ALL STAR GAS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1999, 1998 AND 1997 (IN THOUSANDS)
1999 1998 1997 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (9,627) $ (9,954) $ 2,222 Items not requiring (providing) cash: Depreciation 7,326 7,384 5,467 Amortization 9,795 8,746 7,540 Gain on sale of assets and SYN/Myers transaction (547) (340) (16,190) Deferred income taxes (4,099) (2,597) (750) Changes in: Trade receivables 594 91 (982) Inventories 2,078 372 (905) Prepaid expenses and other (1,509) 937 (644) Due from related parties -- -- 1,163 Accounts payable and customer prepayments 730 1,584 2,392 Accrued expenses and self-insurance 477 (581) (1,015) ---------- ---------- ---------- Net cash provided by (used in) operating activities 5,218 5,642 (1,702) ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of retail service centers and other assets 3,131 2,821 2,476 Receipts on sales of retail outlets previously accrued -- -- 3,002 Proceeds from SYN/Myers transaction -- -- 18,000 Acquisition of retail service centers (601) (4,435) (5,248) Purchases of property and equipment (3,645) (7,187) (7,733) Advances from (to) related parties (721) 378 -- ---------- --------- --------- Net cash provided by (used in) investing activities (1,836) (8,423) 10,497 ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in working capital facility $ (294) $ 4,500 $ (5,839) Principal payments on purchase obligations (3,578) (2,355) (1,362) Proceeds on long-term debt obligations 695 252 -- Increase (decrease) in checks in process of collection 202 316 (1,428) Principal payment on subordinated debentures (13) -- -- Purchase of treasury stock -- -- (99) ---------- --------- --------- Net cash provided by (used in) financing activities (2,988) 2,713 (8,728) ---------- --------- --------- INCREASE (DECREASE) IN CASH 394 (68) 67 CASH, BEGINNING OF YEAR 897 965 898 --------- --------- --------- CASH, END OF YEAR $ 1,291 $ 897 $ 965 ========= ========= ========= See Notes to Consolidated Financial Statements
ALL STAR GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 AND 1998 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS The Company's principal operation is the sale of liquefied propane (LP) gas. Most of the Company's customers are owners of residential single or multifamily dwellings who make periodic purchases on unsecured credit. Such customers are located throughout the United States with the larger number concentrated in the central and western states and along the Pacific coast. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of All Star Gas Corporation and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. REVENUE RECOGNITION POLICY Sales and related cost of product sold are recognized upon delivery of the product or service. INVENTORIES Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method for retail operations and specific identification method for wholesale operations. At June 30, the inventories were:
1999 1998 ---- ---- (In Thousands) Gas and other petroleum products $ 2,003 $ 3,495 Gas distribution parts, appliances and equipment 2,770 3,490 --------- --------- $ 4,773 $ 6,985 ========= =========
PROPERTY AND EQUIPMENT Depreciation is provided on property and equipment on the straight-line method over estimated useful lives of 3 to 33 years. INCOME TAXES Deferred tax liabilities and assets are recognized for the tax effects of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. AMORTIZATION Debt acquisition costs are being amortized on a straight-line basis over the terms of the debt to which the costs are related as follows: the 1994 senior secured note costs (originally $5,143,000) are amortized over ten years; and the costs of the 1999 revolving credit facility (originally $1,279,000) are amortized over three years. Amortization of discounts on debentures and notes (Note 4) is on the effective interest, bonds outstanding method. The majority of the excess of cost over fair value of net assets acquired relates to a transaction originating prior to July 1, 1994, and is being amortized on the straight-line basis over 25 years. Excess of cost over fair value of net assets on subsequent acquisitions is amortized on the straight-line basis over 5 years. INCOME (LOSS) PER COMMON SHARE Income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares and, except where anti-dilutive, common share equivalents outstanding, if any. The weighted average number of common shares outstanding used in the computation of earnings per share was 1,564,050, 1,564,050 and 1,572,902 for each of the periods ended June 30, 1999, 1998 and 1997, respectively. FUTURES CONTRACTS AND PURCHASE COMMITMENTS The Company uses commodity futures contracts to reduce the risk of future price fluctuations for LP gas inventories and contracts. Gains and losses on futures contracts purchased as hedges are deferred and recognized in cost of sales as a component of the product cost for the related hedged transaction. In the statement of cash flows, cash flows from qualifying hedges are classified in the same category as the cash flows from the items being hedged. The Company also routinely makes purchase commitments for the delivery of LP gas inventories, particularly during its peak winter selling season. At June 30, 1999 and 1998, the Company had approximately $872,000 and $9.0 million, respectively, in outstanding commitments to purchase LP gas for inventory. As of June 30, 1999, the Company had no open positions on futures contracts and at June 30, 1998, the Company's open positions on futures contracts were immaterial. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS During the year ended June 30, 1999, the Company adopted SFAS 130, Reporting Comprehensive Income. This Statement establishes standards for reporting and display of comprehensive income and its components in a full set of financial statements. During the year ended June 30, 1999, the Company adopted SFAS 131, Disclosures about Segments of an Enterprise and Related Information. This Statement establishes standards for the way that public business enterprises report information about operating segments. The Statement also establishes standards for related disclosures about products and services, geographic areas and major customers. During the year ended June 30, 1999, the Company adopted SFAS 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. This Statement revises employers' disclosures about pension and other postretirement benefit plans. The FASB recently adopted SFAS 133, Accounting for Derivative Financial Instruments and Hedging Activities. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000, may be adopted early for periods beginning after issuance of the Statement and may not be applied retroactively. The effects of adoption of SFAS 133 on the Company's financial statements are not determinable currently. The Company expects to initially adopt SFAS 133 for fiscal year 2001. SEGMENT INFORMATION The principal business of the Company is the sale of liquefied propane (LP) gas. The Company has no significant assets other than those used in its principal business. The LP gas operation is the Company's only reportable segment. Selected information is not presented separately for the Company's reportable segment, as there is no material difference between that information and the corresponding information in the consolidated financial statements. NOTE 2: MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS The Company has suffered recurring losses from operations, has net working capital and stockholders' equity deficiencies and the annual cash interest requirement on its $127,200,000 Senior Secured Notes increases from 7% to 127/8% in fiscal year 2000. The financial statements have been prepared assuming the Company will continue as a going concern, realizing assets and liquidating liabilities in the ordinary course of business. Management is undertaking several strategies for mitigating these conditions during the coming year. These include the ongoing plan of strategic geographic consolidation of service centers, disposing of nonstrategic or marginal locations and merging small acquisitions into existing markets, and an overall campaign to reduce general and administrative expenses. The Company is also exploring various long-term financing and recapitalization alternatives. Although not currently planned, realization of assets in other than the ordinary course of business to meet liquidity needs could incur losses not reflected in these financial statements. NOTE 3: RELATED PARTY TRANSACTIONS During 1999, 1998 and 1997, the Company has purchased $250,000, $189,000 and $286,000, respectively, of paint from a corporation owned by the spouse of the Company's principal shareholder. Beginning July 1, 1994, the Company entered into a seven-year services agreement with a related party to provide data processing and management information services to the Company. For the year ended June 30, 1997, prior to cancellation, total expenses related to this services agreement were $500,000. In December 1996, the Company and Northwestern Growth Corporation (NGC) completed an agreement for the sale of the Company's interest in SYN Inc. and Myers Acquisition Company (Myers) and the modification and termination of certain agreements between NGC, SYN Inc. and Myers on the one hand and the Company on the other hand. The agreement resulted in the termination of the Management Agreement and a payment of $18 million to the Company resulting in a gain reflected in the statement of operations of $16.9 million, which is net of transaction and other costs and fees. The Company received payments of $1.7 million related to management fees and overhead reimbursement from SYN Inc. for the year ended June 30, 1997. During the year ended June 30, 1998, the Company purchased $20.8 million of LP gas on behalf of SYN Inc. and Myers that was transferred at cost. In December 1996, the Company acquired a 10% ownership interest in Propane Resources Transportation, Inc. (PRT). In December 1996, the Company issued a long-term mortgage obligation of $1.1 million for the purchase of certain transport equipment from SYN Inc. This equipment was then sold to PRT for a $1.1 million long-term note receivable. The balance of this note receivable was $0 and $661,000 at June 30, 1999 and 1998, respectively. PRT provided transport services for a portion of the Company's propane delivery needs resulting in freight charges paid to PRT during 1999, 1998 and 1997 of $773,000, $768,000 and $1.4 million, respectively. During the year ended June 30, 1997, the Company acquired a 39% interest in Propane Resources Supply and Marketing, LLC (PRSM) for $263,000. The Company's investment is stated at amortized cost plus equity in the affiliate's undistributed net income since acquisition. The Company sells LP gas to PRSM on a regular basis. The Company paid consulting fees of $150,000, $200,000 and $117,000 to PRSM during 1999, 1998 and 1997, respectively. In October 1997, the Company acquired Red Top Gas, a retail LP distributor owned by a party related to the principal shareholder, for $6,333,000. Prior to the acquisition, the Company sold LP gas to this party. At June 30, 1999 and 1998, the Company has invested $134,000 along with certain key employees in real estate partnerships as special limited partners for tax credit allocation purposes. In 1998, the Company entered into an operating lease with the principal shareholder for an aircraft. The lease requires $95,000 in annual payments for a term of three years that began in January 1998. At June 30, 1999, the Company had advances of $841,000 to Tres Hombres, Inc. (see Note 15). In 1999, the principal shareholder loaned the Company amounts totaling $3.4 million, bearing interest at a rate of 12%, with terms ranging from 7 days to 6 months. At June 30, 1999, the balance of these obligations was $400,000. NOTE 4: LONG-TERM DEBT Long-term debt at June 30 consisted of (In Thousands):
1999 1998 ---- ---- Working capital facility, due 2002 (A) $ 4,756 $ -- Working capital facility (B) -- 5,050 127/8% Senior Secured Notes, due 2004 (C) 127,200 127,200 9% Subordinated Debentures, due 2007 (D) 9,729 9,746 Purchase contract obligations and capital leases (E) 9,975 12,552 -------- --------- 151,660 154,548 Less unamortized discounts 5,077 12,198 -------- --------- 146,583 142,350 Less current maturities 2,252 7,824 -------- --------- $ 144,331 $ 134,526 ======== =========
(A) The working capital facility was provided by a commercial financing entity in March 1999. All of the Company's receivables and inventories are pledged as collateral to the agreement which contains covenants concerning reporting, EBITDA, tangible net worth and fixed charge coverage ratio requirements, and debt and certain dividend restrictions. At June 30, 1999, the Company was not in compliance with the facility's reporting and tangible net worth covenants. The Company has received a waiver of this noncompliance from the creditor. The facility provides for borrowing up to $15 million, subject to a sufficient borrowing base. The borrowing base generally limits the Company's total borrowings to 85% of eligible accounts receivable and 55% of eligible inventory. The facility bears interest at the greater of 7.75% or the reference rate (prime) plus 4% (currently 12.42%). The agreement provides for payment of a $150,000 funding fee on the anniversary date of the loan each year. (B) The working capital facility, prior to March 1999, was provided to the Company in June 1994 in conjunction with the offering of the 127/8% Senior Secured Notes, due 2004. All of the Company's receivables and inventories were pledged to the agreement which contained tangible net worth, capital expenditures, interest coverage ratio, debt and certain dividend restrictions. These dividend restrictions prohibited the Company from paying common stock cash dividends. The facility provided for borrowings up to $15 million, subject to a sufficient borrowing base. The borrowing base generally limited the Company's total borrowings to 85% of eligible accounts receivable and 52% of eligible inventory. The facility bore interest at either 1.5% over prime or 3.0% over the LIBOR rate and provided for a commitment fee of .375% per annum of the unadvanced portion of the commitment. (C) The notes were issued June 1994 at a discount and require interest payments at 7% through July 15, 1999, and at 127/8% thereafter. The notes are redeemable at the Company's option. The original principal issued may be redeemed, as a whole or in part, at 106.438% of the principal amount through July 15, 2000, and at declining percentages thereafter. The notes are guaranteed by the subsidiaries of the Company and secured by the common stock of the restricted subsidiaries of the Company. The original principal amount of the notes issued ($127,200,000) was adjusted ($27,980,000) to give effect for the original issue discount and the common stock purchase warrants (effective interest rate of 13.0%). The discount on these notes is being amortized over the remaining life of the notes using the effective interest, bonds outstanding method. Separate financial statements of the guarantor subsidiaries are not included because such subsidiaries have jointly and severally guaranteed the notes on a full and unconditional basis; the aggregate assets and liabilities of the guarantor subsidiaries are substantially equivalent to the assets and liabilities of the parent on a consolidated basis; and the separate financial statements and other disclosures concerning the subsidiary guarantors are not deemed to be material. The guarantor subsidiaries are restricted from paying dividends to the Company during any periods of default under the respective debt agreements. (D) The debentures, issued June 1983, are redeemable at the Company's option, as a whole or in part, at par value. The original principal amount of debentures issued was adjusted to market at issuance (effective interest rate of 16.5%). The remaining discount on these debentures is being amortized over the remaining life of the debentures using the effective interest, bonds outstanding method. (E) Purchase contract obligations arise from the purchase of operating businesses and are collateralized by the equipment and real estate acquired in the respective acquisitions. Capital leases include leases covering trucks and data processing equipment. At June 30, 1999 and 1998, these obligations carried interest rates from 7% to 11% and are due periodically through 2006. Aggregate annual debt service requirements (in thousands) of the long-term debt outstanding at June 30, 1999, are: Total Principal Interest Debt Service --------- -------- ------------- 2000 $ 2,252 $ 14,202 $ 16,454 2001 2,149 17,771 19,920 2002 6,258 17,642 23,900 2003 1,267 17,532 18,799 2004 127,919 17,474 145,393 Thereafter 11,815 2,798 14,613 --------- --------- --------- $ 151,660 $ 87,419 $ 239,079 ========= ========= ========= NOTE 5: INCOME TAXES The provision (credit) for income taxes includes these components:
1999 1998 1997 ---- ---- ---- (In Thousands) Taxes currently payable (refundable) $ (1,098) $ (1,533) $ 2,550 Deferred income taxes (4,099) (2,597) (750) --------- --------- --------- $ (5,197) $ (4,130) $ 1,800 ========= ========= =========
The tax effects of temporary differences at June 30, 1999 and 1998, related to deferred taxes were:
1999 1998 ---- ---- (In Thousands) Deferred Tax Assets Allowance for doubtful accounts $ 191 $ 274 Accounts receivable advance collections 36 11 Self-insurance liabilities and contingencies 1,247 930 Original issue discount 10,046 7,497 Net operating loss carryforwards 2,864 381 Alternative minimum tax credit carryforwards 2,200 3,000 --------- --------- 16,584 12,093 Deferred Tax Liability Accumulated depreciation and tax cost differences (17,078) (16,686) --------- --------- Net deferred tax liability $ (494) $ (4,593) ========= ========= The above net deferred tax liability is presented on the June 30 balance sheets as follows: 1999 1998 ---- ---- (In Thousands) Deferred Tax Assets (Liabilities) Deferred tax asset - current $ 300 $ 312 Deferred tax liability - long-term (794) (4,905) --------- --------- Net deferred tax liability $ (494) $ (4,593) ========= =========
A reconciliation of income tax expense at the statutory rate to the Company's actual income tax expense is shown below:
1999 1998 1997 ---- ---- ---- (In Thousands) Computed at the statutory rate (34%) $ (5,040) $ (4,789) $ 1,367 Increase (decrease) resulting from: Amortization of excess of cost over fair value of net assets acquired 389 386 268 State income taxes - net of federal tax benefit (280) (96) 90 Nondeductible travel costs and other expenses 31 28 87 Other (297) 341 (12) --------- --------- --------- Actual tax provision (credit) $ (5,197) $ (4,130) $ 1,800 ========= ========= =========
At June 30, 1999, the Company had approximately $2.2 million of alternative minimum tax credits available to offset future federal income taxes. The credits have no expiration date. The Company also has unused operating loss carryforwards of $7.8 million, which expire in the years 2018 and 2019. NOTE 6: SELF-INSURANCE AND CONTINGENCIES Under the Company's current insurance program, coverage for comprehensive general liability, workers' compensation and vehicle liability is obtained for catastrophic exposures as well as those risks required to be insured by law or contract. The Company retains a portion of certain expected losses related primarily to comprehensive general and vehicle liability. The Company self-insures the first $200,000 for each and every general liability incident. For the vehicle and workers' compensation programs, the Company has a $250,000 deductible per occurrence. The Company obtains excess coverage on occurrence basis policies. Provisions for self-insured losses are recorded based upon the Company's estimates of the aggregate self-insured liability for claims incurred, resulting in a retention for a portion of these expected losses. The ending accrued liability includes $150,000 for incurred but not reported claims at June 30, 1999 and 1998. The current portion of the ending liability of $400,000 and $500,000 at June 30, 1999 and 1998, respectively, is included in accrued expenses in the consolidated balance sheets. The noncurrent portion at the end of each period is included in accrued self-insurance liability. The Company and its subsidiaries are also defendants in various lawsuits related to the self-insurance program and other business related lawsuits which are not expected to have a material adverse effect on the Company's financial position or results of operations. The Company currently self-insures health benefits provided to the employees of the Company and its subsidiaries subject to a $75,000 cap per claim. Provisions for losses expected under this program are recorded based upon the Company's estimate of the aggregate liability for claims incurred. The aggregate cost of providing the health benefits was $816,000, $700,000 and $492,000 for the years ended June 30, 1999, 1998 and 1997, respectively. In conjunction with a restructuring transaction involving the Company and Empire Energy Corporation, the parties agreed to share on a percentage basis the self-insured liabilities and other business related lawsuits incurred prior to June 30, 1994, including both reported and unreported claims. The self-insured liabilities included under this agreement include general, vehicle, workers' compensation and health insurance liabilities. Under the agreement, the Company assumed 52.3% of the liability with Empire Energy Corporation assuming the remaining 47.7%. The Company and its subsidiaries are presently involved in other various federal and state tax audits which are not expected to have a material adverse effect on the Company's financial position or results of operations. NOTE 7: STOCK OPTIONS AND WARRANTS STOCK OPTIONS The Company has established a Stock Option Plan for the benefit of its employees, consultants and directors. Stock options may be either incentive stock options or nonqualified stock options, with an option price no less than the fair value of the Company's common stock on the date of the grant. Options are granted for no more than a ten-year term and are exercisable based on a written agreement between the administrator and optionee. The table below summarizes transactions under the Company's stock option plan: Number of Shares ---------------- Balance, June 30, 1997 672,126 Granted ($7.00 per share) 104,000 Forfeited (192,100) --------- Balance, June 30, 1998 584,026 Granted ($7.00 per share) 154,404 Forfeited (237,730) --------- Balance, June 30, 1999 500,700 ========= Options outstanding at June 30, 1999, have a weighted-average remaining contractual life of approximately 7 years with 273,218 options currently exercisable at a price of $7.00 per share. The Company applies Accounting Principles Board Opinion 25 and related Interpretations in accounting for the plan, and no compensation cost has been recognized. No fair value disclosures with respect to stock options are presented because, in the opinion of management, such values do not have a material effect. COMMON STOCK PURCHASE WARRANTS In connection with the Company's restructuring, the Company attached warrants to purchase common stock to the new issuance of 127/8% Senior Secured Notes, due 2004. Each warrant represents the right to purchase one share of the Company's common stock for $.01 per warrant. The warrants are exercisable currently and will expire on July 15, 2004. The table below summarizes warrant activity of the Company:
Number Exercise of Shares Price --------- -------- Issued 175,536 $.01 ---------- Balance at June 30, 1999 and 1998 175,536 $.01 ==========
NOTE 8: ADDITIONAL CASH FLOW INFORMATION (IN THOUSANDS)
1999 1998 1997 ---- ---- ---- NONCASH INVESTING AND FINANCING ACTIVITIES Note receivable from sale of retail service center $207 -- -- Purchase contract obligations incurred for business acquisitions -- $7,115 $5,463 Capital lease obligations incurred for property and equipment $232 $328 -- ADDITIONAL CASH PAYMENT INFORMATION Interest paid $11,762 $11,406 $11,156 Income taxes paid (refunded), net $(1,486) $(842) $3,361
NOTE 9: EMPLOYEE BENEFIT PLAN The Company has a defined contribution retirement plan covering substantially all employees. Employees who elect to participate may contribute a percentage of their salaries to the plan. The Company may make contributions to the plan at the discretion of its Board of Directors. No contributions to the plan were made by the Company during the years ended June 30, 1999, 1998 or 1997. NOTE 10: OPERATING LEASES Noncancelable operating leases, which cover office space and various equipment, expire in various years through 2005. These leases generally contain renewal options for periods ranging from 1 to 5 years and require the Company to pay all executory costs (property taxes, maintenance and insurance). Future minimum lease payments (in thousands) at June 30, 1999, were: 2000 $ 253,260 2001 219,838 2002 186,388 2003 155,588 2004 151,088 Thereafter 99,872 ------------- Future minimum lease payments $ 1,066,034 ============= NOTE 11: RESTRUCTURING PROPOSAL COSTS During the year ended June 30, 1998, the Company was considering a proposal to restructure its debt and equity. The Company abandoned the proposal and has expensed the related costs of $910,000 and $1.9 million during the years ended June 30, 1998 and 1997, respectively. NOTE 12: SIGNIFICANT ESTIMATES AND CONCENTRATIONS Generally accepted accounting principles require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following: ESTIMATES Significant estimates related to self-insurance, goodwill amortization, litigation, collectibility of receivables and income tax assessments are discussed in Notes 1 and 6. Actual losses related to these items could vary materially in the near term from amounts reflected in the financial statements. YEAR 2000 ISSUE Like all entities, the Company is exposed to risks associated with the Year 2000 Issue, which affects computer software and hardware; transactions with customers, vendors and other entities; and equipment dependent on microchips. The Company has begun but not yet completed the process of identifying and remediating potential Year 2000 problems. It is not possible for any entity to guarantee the results of its own remediation efforts or to accurately predict the impact of the Year 2000 Issue on third parties with which the Company does business. If remediation efforts of the Company or third parties with which it does business are not successful, the Year 2000 problem could have negative effects on the Company's financial condition and results of operations in the near term. NOTE 13: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS At June 30, 1999 and 1998, the Company's financial instruments consist of cash, trade receivables and payables, receivables from related parties and long-term debt. The following methods were used to estimate the fair value of financial instruments: RECEIVABLES FROM RELATED PARTIES It was not practicable to estimate the fair value of receivables from related parties. The amounts reflected in the balance sheet at June 30, 1999 and 1998, are advances from the Company to various related parties. LONG-TERM DEBT Fair value of long-term debt is estimated based on the trading prices of the Company's primary debt issuance. The fair value of the other debt approximates carrying value as other debt consists of multiple mortgage obligations and debentures and the working capital facility with interest rates approximating rates currently available to the Company. The carrying amounts and fair values of these financial instruments at June 30 are as follows (in thousands): 1999 1998 -------------------- --------------------- Carrying Fair Carrying Fair Amount Value Amount Value Financial Assets: Cash $1,291 $1,291 $897 $897 Financial Liabilities: Senior Secured Notes due 2004 $126,183 $94,764 $119,248 $109,392 Other long-term debt $19,746 $19,746 $22,573 $22,573 NOTE 14: BUSINESS ACQUISITIONS During the year ended June 30, 1999, the Company acquired one LP gas operation through an asset purchase transaction for a total of $675,000, of which $590,000 was paid in cash with the remainder in mortgage obligations and the assumption of certain liabilities. During the year ended June 30, 1998, the Company acquired four LP gas operations through two asset purchase transactions and two stock purchase transactions for a total of $12.1 million, of which $5.1 million was paid in cash with the remainder in mortgage obligations and the assumption of certain liabilities. Each of these acquisitions has been accounted for as a purchase by recording the assets acquired and the liabilities assumed at their estimated fair values at the acquisition date. Amounts paid above these fair values are recorded as excess of cost over fair value of net assets acquired. The consolidated operations of the Company include the operations of the acquirees from the acquisition dates. Unaudited pro forma consolidated operations assuming the purchases were made at the beginning of the previous and current years are shown below: 1999 1998 ---- ---- (In Millions) Net sales $79.5 $87.5 Net loss $(9.6) $(9.9) The pro forma results are not necessarily indicative of what would have occurred had the acquisitions been on those dates, nor are they necessarily indicative of future operations. NOTE 15: SUBSEQUENT EVENT Effective July 2, 1999, the Company acquired Tres Hombres, Inc., a restaurant chain substantially owned by the principal shareholder of the Company. The transaction was consummated through an exchange of voting common stock and is being accounted for in a manner similar to a pooling of interests. Unaudited pro forma consolidated operations assuming the acquisition was made at the beginning of the previous and current years are shown below. Pro forma disclosures for 1997 are not presented as the information necessary to compute the pro forma amounts is not available. 1999 1998 ---- ---- (In Millions Except Per Share Data) Net sales $83.7 $91.1 Net loss $(9.9) $(10.2) Basic and diluted loss per common share $(6.23) $(6.42) Independent Accountants' Report on Financial Statement Schedules ---------------------------------------------------------------- Board of Directors and Stockholders All Star Gas Corporation Lebanon, Missouri In connection with our audit of the consolidated financial statements of ALL STAR GAS CORPORATION for each of the three years in the period ended June 30, 1999, we have also audited the following financial statement schedules. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits of the basic financial statements. The schedules are presented for purposes of complying with the Securities and Exchange Commission's rules and regulations and are not a required part of the consolidated financial statements. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. BAIRD, KURTZ & DOBSON Springfield, Missouri August 13, 1999 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JUNE 30, 1999, 1998 AND 1997 (IN THOUSANDS)
Balance at Charges to Amount Balance at Beginning Costs and Written End of Description of Year Expenses Off Other Year ----------- ---------- ----------- -------- ----- ---------- Valuation accounts deducted from assets to which they apply - for doubtful accounts receivable: June 30, 1999 $844 $227 $545 $3(A) $526 $(3)(B) June 30, 1998 $899 $342 $475 $96(A) $844 $(18)(B) June 30, 1997 $722 $483 $369 $83(A) $899 $(20)(B)
(A) Allowance for doubtful accounts receivable established with respect to the acquisition of retail service centers. (B) Related to accounts receivable which were sold in conjunction with the disposition of retail service centers. EX-21 2 EXHIBIT 21.1 - SUBSIDIARIES OF THE COMPANY Exhibit 21.1 ALL STAR GAS CORPORATION LISTING OF SUBSIDIARIES All Star Gas Inc. of Arizona All Star Gas Inc. of Arkansas All Star Gas Inc. of California All Star Gas Inc. of Colorado All Star Gas Inc. of Idaho All Star Gas Inc. of Jacksonville All Star Gas Inc. of Arma Empire Underground Storage Inc. All Star Gas Inc. of Louisiana All Star Gas Inc. of Michigan All Star Gas Inc. of Missouri Utility Collection Corporation All Star Gas Field Services Inc. All Star Airlines Inc. All Star Gas Inc. of North Carolina All Star Gas Inc. of Ohio All Star Gas Of Oklahoma Inc. All Star Gas Inc. of Oregon All Star Gas Inc. of South Carolina All Star Gas Inc. of Texas All Star Gas Inc. of Washington All Star Gas Inc. of Wyoming All Star Gas Inc. of Indiana All Star Gas Inc. of Nevada All Star Acquisition Co. All Star Development LLC Empire Gas Corporation All Star Gas Transports Inc. - Oregon All Star Gas Transports Inc. - Missouri Red Top Gas Inc. Ellington Propane Inc. Garstang Gas Co. Inc. RTG, Inc Tri County Gas Co. Tres Hombres Incorporated Tres Hombres Inc. (incorporated in Missouri) Tres Hombres Inc. (incorporated in Kansas) Tres Hombres Inc. (incorporated in Tennessee) EX-27 3 FINANCIAL DATA SCHEDULE
5 12-MOS JUN-30-1999 JUN-30-1999 1,291 0 4,775 526 4,773 12,263 118,225 42,459 105,463 22,319 144,331 0 0 14 (62,315) 105,463 75,733 79,537 36,583 36,583 0 227 19,475 (14,824) (5,197) (9,627) 0 0 0 (9,627) (6.16) (6.16)
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